Coming after a 11-year hiatus, the latest Household Consumption Expenditure Survey findings based on surveys conducted between August 2022 and July 2023, shall feed into a possible review of the Consumer Price Index. 
| Photo Credit: The Hindu

India’s headline inflation is expected to trend down creating more room for monetary and fiscal policy to focus on spurring growth rather than fret over inflation, if the latest Household Consumption Expenditure Survey (HCES) that shows a lower proportion of food spends for both rural and urban consumers, is used to rejig the Consumer Price Index (CPI).

The CPI, which is currently based on the 2011-12 consumption spending survey, assigns a weightage of almost 54.2% for rural consumers’ food and beverages’ expenditure and 36.3% for urban consumers, with the combined weightage for such expenses by all households at nearly 46%.

As per the HCES findings for 2022-23, rural spending on food and beverages has dropped to 46.4% from 52.9% in 2011-12, while urban peers spent 39.2% of their overall monthly outgoes on food compared to 42.6% incurred 11 years earlier.

“I think this will have serious implications. There will have to be a complete recast of the CPI that the National Statistical Office [NSO] produces. What is driving inflation today is food, while core inflation is down,” remarked NITI Aayog CEO B.V.R. Subrahmanyam.

“That’s what the Reserve Bank of India [RBI] also keeps saying… that food inflation is spiking, sometimes in onions, sometimes in vegetables, sometimes in pulses. Suddenly, if their share shrinks, your inflation will also probably go down and my suspicion is our inflation is over-reported,” he noted.

In January, core inflation, which excludes volatile energy and food prices, is estimated to have hit a record low of 3.7% in the current CPI data series which uses 2012 as a base year. However, food inflation stood at 8.3%, while food and beverages together clocked a 7.6% inflation.

Mr. Subrahmanyam stressed that rebalancing the CPI, with a lower share of food and cereals, will possibly lead to a reduction in retail inflation which will affect the RBI, which sets interest rates based on retail inflation trends. Economists broadly agreed with Mr. Subrahmanyam’s prognosis.

“Lower weights for food will tend to have a bias on core inflation and reveal lower headline inflation for sure. These weights need to be carefully assessed and ratified over a period of time. Hence choice of the base year is important,” Bank of Baroda chief economist Madan Sabnavis told The Hindu, adding that lower retail inflation would give the central bank room to focus on growth.

GDP math effects 

Coming after a 11-year hiatus, the latest HCES findings based on surveys conducted between August 2022 and July 2023, shall feed into a possible review of the CPI. However, the government is likely to wait for the results of a fresh HCES that began last August and will be completed this July, before pursuing the CPI reset. An official said that the ongoing survey would confirm whether the 2022-23 Survey’s findings are robust and realistic.

The NITI Aayog CEO said this would happen in due course and could also affect the calculation of the economy’s output in GDP (Gross Domestic Product) terms, because the deflators would change. “Suppose GDP was 330, and you deflated it by 10%, it would be 300. But if you deflate it by 8%, the GDP would be higher. I think all these things will happen,” he said.

An economist who didn’t want to be identified said one will have to wait for the complete findings of the latest HCES to ascertain the extent of changes in consumption patterns and the impact on inflation rates will depend on when the government opts to change the CPI base and weightages.

The central government on Tuesday slashed the price of a domestic LPG cylinder by ₹ 200. The union government has been facing criticism over rising inflation and its impact on households. 

Notably, the reduction in prices of the LPG cylinder has come ahead of the Assembly elections in five States and the Lok Sabha election scheduled in 2024.

Anurag Thakur, Minister for Information & Broadcasting,  said, “On the occasion of Raksha Bandhan and Onam, Prime Minister Narendra Modi has decided to reduce the price of domestic cylinders by ₹200. When we came in 2014, only 14.4 crore people had a cooking cylinder. Today, that figure has gone up to 33 crores, out of which 9 crore 60 lakh people have received Ujjwala gas cylinders. People availing Ujjwala gas yojna already get ₹ 200 subsidy…This is a gift from Prime Minister Narendra Modi to the women of the country.”

मोदी सरकार का तोहफा!

200 रुपए सस्ता हुआ रसोई गैस सिलेंडर। pic.twitter.com/QcPwF9FLng

— BJP (@BJP4India) August 29, 2023

How much will a cylinder cost now?

Mr Thakur, in its official release, stated that the reduced prices will be effective from August 30. “The price of a 14.2 Kg LPG cylinder will be reduced by ₹ 200 in all markets across the country. In Delhi for instance, the decision will bring down the cost of a 14.2 Kg cylinder from the existing ₹ 1,103 per cylinder to a more affordable Rs 903 per cylinder,” read the official statement. 

The reduction in prices of LPG cylinders also applies to beneficiaries under the Pradhan Mantri Ujjwala Yojana (PMUY). The price for PMUY beneficiaries will be ₹ 703. Earlier this year, in March, the Centre had extended a subsidy of ₹ 200 per LPG cylinder under the scheme. 

Earlier the price of a 14.2 Kg LPG cylinder in Kolkata was ₹ 1,129. Now, the rate has dropped to ₹ 929. In Mumbai, the LPG cylinder price has been reduced from ₹ 1,102.50 to ₹ 902.50. On the other hand, in Chennai, these cylinders are being sold for ₹ 918.50. Earlier the price of an LPG cylinder in Chennai was ₹ 1,118.50. 

Petroleum and Natural Gas Minister, Hardeep Singh Puri said that the move is aimed at providing direct relief to families, while also supporting the central government’s larger goal of providing essential items at affordable prices. 

He said, “We understand the challenges faced by households in managing their budgets. The reduction in cooking gas prices is aimed at providing direct relief to families and individuals, while also supporting the Government’s larger goal of ensuring affordable access to essential items.”